Guest post by Timothy R. Holbrook, Vice Provost for Faculty Affairs and Asa Griggs Candler Professor of Law, Emory University.
The America Invents Act (AIA) effected a sea change in U.S. patent law. One of the most significant changes was to shift the U.S. from a “first to invent” to a “first inventor to file” system for allocating priority. This move is reflected in the restructuring of 35 U.S.C. § 102, the provision that defines prior art for assessing whether an invention is novel and non-obvious.
Aside from the shift in assessing priority, some contended that, by amending § 102, Congress had rejected long-standing Supreme Court precedent that allowed secret uses and sales of the invention to trigger the statutory bars under the 1952 Patent Act. In Helsinn Health Care S.A. v. Teva Pharmaceuticals USA, Inc., the Supreme Court, in its first case addressing the AIA’s § 102, rejected this argument.
The AIA did more than shift the United States to a first-inventor-to-file system, however. The AIA also eliminated geographic limits on prior art. Under the 1952 Patent Act, activities triggering the public use and on-sale bars under then-35 U.S.C. § 102(b) had to take place “in this country.” The elimination the geographic limit greatly expands what qualifies as prior art under the AIA. Moreover, the Supreme Court’s interpretation of the AIA in Helsinn makes that even more sweeping as secret sales activity that may not be accessible to the broader public can now qualify as prior art.
The removal of the territorial limits, however, also presents a different question: whose law will govern whether an invention is deemed “on sale”? Under the 1952 Patent Act, to be on sale, an invention (1) had to be the subject of a formal commercial offer for sale and (2) had to be ready for patenting. Whether the invention is subject to a formal commercial offer is assessed from basic contract principles.
In the foreign context, however, what constitutes a formal commercial offer may vary from U.S. law. Because these proposed or completed sales transactions could take place outside of the United States, the law of another country generally would govern any potential or actual agreements.
The elimination of the geographic limits to on-sale activity now presents a choice of law problem. On one hand, one could argue that the law of the relevant country should control: the parties in the transaction have that law in mind and not necessarily U.S. patent law. On the other, if the courts were to rely on foreign law to assess whether the invention is “on sale” under § 102(a) of the AIA, then what qualifies as on-sale prior art would vary widely, depending on the law of the country in which the commercial activity took place. The same activity might qualify as prior art in one context and not in another. Courts, therefore, would be better of creating U.S. law defining triggers on-sale prior art regardless of where the activity occurred.
So what route will the courts take? I suspect it will be the latter, using Federal Circuit law to define the contours of on-sale prior art even when the activity arises overseas.
The Federal Circuit addressed an analogous situation in interpreting the statutory bars under § 102(b) of the 1952 Patent Act. After the Supreme Court reworked the on-sale bar test in Pfaff v. Wells Electronics, Inc., the Federal Circuit in Group One, Ltd. v. Hallmark Cards, Inc., clarified step one of the two-part test by requiring a formal commercial offer for sale. In so doing, the court confronted a similar choice of law issue: should the law of the state governing the transaction dictate whether the invention was on sale, or should Federal Circuit law?
The court opted for the latter, rejecting the district court’s use of Missouri law to determine whether the invention was on sale. The court reasoned that reliance on state law would create variability in interpreting a federal statute and emphasized “the importance of having a uniform national rule.” As the court stated:
To hold otherwise would potentially mean that a patent could be invalid in one state, when the patentee’s actions amounted to an offer under the laws of that state, and valid in a second state, when the same actions did not amount to an offer under the laws of that second state. Such a result is clearly incompatible with a uniform national patent system.
If past is prologue, one could easily see the court reaching the same conclusion with respect to the use of foreign law to interpret § 102(a) of the AIA. Applying the law of various countries where commercial activities arise could lead to widely varying standards for on-sale prior art. Indeed, the situation would be fare more complex than applying state law not only because of differing legal standards but also differing legal systems. It is a more complicated analysis for U.S courts to discern foreign law than to discern the law of a given state. It seems highly likely, therefore, that the Federal Circuit choose to apply its own law, using basic contract principles, in interpreting § 102(a) on-sale prior art that arises in foreign countries.
The situation at the international level, however, is far more complex than refusing to apply state law. Activities in a foreign country would be assessed, and indirectly regulated, through the application of a U.S. legal standard, implicating concerns of the extraterritorial application of U.S. law. Unlike the state law situation – where state law is subordinate to federal law – the Federal Circuit will be applying the law of the United States to acts in a co-equal sovereign. Actors in the relevant country may be unaware that their commercial behavior is violating U.S. patent law if there are significant substantive differences. That said, I would be surprised if courts consider this activity to trigger the presumption against extraterritoriality, in the same way they failed to truly account for the presumption in the patent exhaustion context.
The removal of geographic limits on public uses and on-sale prior art is a rather sweeping change. As yet, the importance of the removal of these territorial limits has not been explored by the courts. Particularly as it relates to on-sale prior art, courts likely will be applying U.S. law to activities arising in foreign countries in the interest in having a uniform standard.
Tim Holbrook is Vice Provost for Faculty Affairs and Asa Griggs Candler Professor of Law at Emory University. This essay is drawn from part of his article, What Counts As Extraterritorial in Patent Law?, 25 B.U. J. SCI. & TECH. L. 291 (2019).